Time to call in the insurers

LewSichelman

WASHINGTON (MarketWatch) -- Question: I've tried everything I can think of to get my lender to talk to me about my pending ARM adjustment, but every time I call, I either get stuck on hold for what seems like forever or I am told someone will get back to me and they never do. My loan will adjust soon, and I am certain I won't be able to afford the payments once it does. Got any suggestions? Willie Banks, Glendale, Ariz.

Answer: How to get your lender's attention? I've written about withholding your payments so you become delinquent as a way to move up the list as a borrower who requires more immediate help, as opposed to someone who may or may not need help somewhere down the road. See previous Realty Q&A.

I've written about pouring over your loan documents in hopes of finding even a minor violation of the law so that you can threaten the lender with a law suit. See previous Realty Q&A.

Here's another idea I picked up recently in a conversation with a private mortgage insurer. If your loan has mortgage insurance, call the insurer and ask the company to intervene on your behalf. Since the insurer is on the hook for a hefty chunk of your loan amount should you fail, it should go to bat for you. After all, as a counter-party to the loan, the carrier has a vested interest in resolving your problem.

If you made less than a 20% down payment, chances are good that you have private mortgage insurance, or PMI, which protects the lender from loss if you should default. You pay for the coverage as part of your monthly payment, but it's the lender who is covered, not you.

Realize, though, that you are far from alone in trying to reach an overworked lender. They're swamped with calls from folks who are in trouble. "Even we wait a long time on the phone to get through," one insurance company told me.

One company, PMI of Walnut Creek, Calif., has gone so far as to actually place some of its own employees in the offices of giant lenders such as Washington Mutual and Countrywide. These workers are "are authorized to make decisions on the loan modifications on-site in an effort to eliminate log jams and take a bit of the overwhelming load off of the lenders," according to a spokesman.

In one instance, according to the spokesman, an insured turned in all the paperwork to modify his loan, but the lender rejected it, saying his documents were insufficient. PMI sent one of its employees to the lender to look through the file and found that the borrower was missing a single pay stub. It secured the missing paperwork for the lender, which then proceeded with modifying the customer's loan so he could afford the payments.

That's just one example of how a private mortgage insurer may be able to help, the spokesman told me.

By the way, even if you are not paying for the coverage, you still might have the insurance. Many lenders pay the tab in what's known in the trade as "lender-paid" PMI. So it's wise to call your lender to see if your loan is covered, even if you aren't paying for the insurance directly. If insurance is in place, the carrier won't care who's paying the bill. If the loan goes south, the insurer is on the hook, one way or another, so it's likely to intercede on your behalf.

How much is too much inventory?

Q: I keep reading about excess housing inventory and how it is a drag on the market. Everything I read says that until the inventory is worked off, the market won't reach bottom and prices won't stop falling. But I can't find anything that puts a number to the word "excess." Can you? Evelyn H., Corpus Christi, Texas.

A: There is inventory and there is excess inventory. That is, there is always a "normal" number of houses on the market at any point in time, and then there is an oversupply of houses over and above the norm. It isn't the inventory that's the issue, it's the overage. According to a recent report by the National Multi-Housing Council, the overstock is somewhere near 3 million units, and it could take years to work it down to the norm.

The NMHC counts nearly 1 million empty units on the market over and above what was the normal amount during the 1990s, and almost 2 million occupied units. The group's math is a little difficult to follow, but let me try to give it a whirl.

According to the latest Census Bureau count, 2.2 million vacant housing units were for sale as of this year's second quarter. Based on data from the American Housing Survey, the NMHC said that total breaks down to 1.8 million vacant single-family houses and 325,000 empty multi-family units.

But as I mentioned, not all the inventory can be considered excess. "Some vacant units are both normal and necessary for smoothly functioning markets," the NMHC report said.

Using the 1.6% vacancy rate for the 1990s as normal, the research figures that the right number of for-sale units would be just over 1.2 million, meaning only 950,000 units -- 825,000 houses and 125,000 apartments -- can be considered surplus.

The study also points out that besides vacant units, there also is a plethora of unsold but still occupied houses on the market as well. On average, the inventory of existing houses and condominiums for sale is equal to about six months' worth of sales. But the inventory for June, July and August is running at 11 months' supply, meaning about 4.4 million units are for sale, the report says.

Allowing for the normal, six-month supply of 2.2 million houses and 293,000 apartments, that puts the excess inventory of occupied homes at about 2 million -- 1.6 million houses and 382,000 apartments -- which is twice the oversupply of empty houses currently on the market.

With 925,000 surplus empty units and about 2 million extra occupied houses on the market, the total excess is more than 2.9 million units, according to the NMHC's calculations.

"Clearly there is enormous excess inventory of for-sale housing, which continues to push prices down in most parts of the country," the report says. "The cutback in new construction is helpful, but it isn't enough. No significant housing upturn is possible until we have cleared away most of this excess inventory. It is hard to see how this could happen before 2010 at the very earliest."

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.